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Phillips 66 Sets 2020 Capital Expenditure at $3.3 Billion

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Phillips 66 PSX announced 2020 capital budget of $3.3 billion compared with projected capex of $3.3-$3.6 billion for 2019. Of the total, $1.2 billion will be invested in sustaining capital.

Phillips 66 has a long-term capital allocation plan, which will allow it to allocate roughly 60% of operating cash flow for business investments. The remaining 40% is likely to be returned to its shareholders via share buybacks and dividend payments. This reflects the company’s overall strong operations and competitive strength in all the business segments that include midstream, chemicals and refining.

Midstream

Phillips 66 has apportioned $1,054 million toward the Midstream segment, of which $887 million is for growth capital and the rest is for sustaining capital. The company will allocate growth capital for funding the Liberty and Red Oak crude oil pipeline projects. An additional fractionation capacity of 450,000 barrels per day at the Sweeny Hub is included under the allocation. The midstream budget also includes an additional $867 million for Phillips 66 Partners LP PSXP, of which $734 million will be allocated for growth capital. The rest will be used for sustaining purposes.

Refining

The company plans to invest $1,050 million in the Refining segment, with $600 million allocated toward safety, reliability and environmental projects. Refining growth capital of $450 million is for small, high-return and rapid payout projects to boost clean product yields. These include the upgrade of the fluid catalytic cracking unit at the Ponca City and Sweeny Refinery, along with other quick-payout and high-return projects.

Marketing and Specialties

Phillips 66 intends to allocate $161 million of the total capital spending to Marketing and Specialties. The company will invest $79 million for growth projects and focus on enhancing international retail sites, while $82 million will be used for sustaining purposes.

Others

It intends to invest $204 million in Corporate and Other projects, related to information technology and facilities. Phillips 66’s proportionate share of capital spending by joint ventures — Chevron Phillips Chemical Company LLC (CPChem), DCP Midstream, LLC (DCP Midstream) and WRB Refining LP (WRB) — is estimated at $1.2 billion.

Phillips 66’s share of CPChem’s 2020 capital expenditure is projected at $656 million, with $406 million targeted toward growth projects including the development of Qatar and U.S. Gulf Coast petrochemicals projects for additional ethylene and derivative capacity.

Phillips 66’s expected share of DCP Midstream’s 2020 capital spending is $350 million. Around 86% of the budget will primarily be allocated toward growth projects that include funding of Fracs 2 and 3 at its Sweeny Hub.

The company’s allocation toward WRB’s capital expenditure is projected at $215 million, of which $106 million will be for growth purposes. All the three major joint ventures are expected to finance its capital spending internally.

The 2020 capital budget of Phillips 66 is in sync with its long-term strategy and reflects strong portfolio of growth projects. Moreover, the midstream business is in high demand in the United States due to higher requirement for fresh pipeline and infrastructure properties in the flourishing shales, stemming from existing bottleneck problems. Consequently, Phillips 66 is planning to allocate a significant portion of the 2020 capital budget toward midstream operations.

Price Performance

Phillips 66 has gained 32.5% year to date compared with 4.2% collective rise of the stocks belonging to the industry.

Zacks Rank & Other Stocks to Consider

Currently, Phillips 66 carries a Zacks Rank #2 (Buy). Other top-ranked stocks in the energy sector include Antero Midstream Corporation AM and Frank's International N.V. FI, each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Antero Midstream’s bottom line for the current quarter is expected to skyrocket 130% year over year.

Frank's International’s bottom line for 2019 is expected to rise 23.8% year over year.

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Antero Midstrm (AM) : Free Stock Analysis Report
 
Phillips 66 Partners LP (PSXP) : Free Stock Analysis Report
 
Phillips 66 (PSX) : Free Stock Analysis Report
 
Frank's International N.V. (FI) : Free Stock Analysis Report
 
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